1. Field of the Invention
The instant invention relates generally to a group of computer-based methods preferably utilized with an implied alpha model, which can be treated as a preference aggregation when its factors represent investors' preferences on their portfolio.
2. Background of the Invention
Investors often favor or disfavor certain characteristics of their portfolios. For instance, investors may prefer high dividend payout stocks, short duration bonds, emerge market currencies, among other items. As such, an investor's preferences may impose a drag on the performance of their portfolios, resulting in what may be called a preference drag problem or simply a drag problem.
Investors will normally receive a reduced profit, or even lose money when a drag problem exists in their portfolio. For example, investors may favor stocks issued by large firms in a general case, stocks issued by high sales firms during a business boom, high dividend payout stocks in a low interest rate environment, or stocks issued by low debt firms during a recession. According to our study, these preferences cost investors approximately 1.24% annually if they invested in the Russell 1000 from 1990 to 2011. Put another way, investors made an average of 1.24 million dollars less each year if they were investing 100 million dollars in the Russell 1000 from 1990 to 2011.